UK: Why It Is Important To Seek Legal And Financial Advice On A Divorce Involving Pensions

What is a pension sharing order?

Pensions are often one of the biggest assets in a marriage or civil partnership. A principle of sharing (often equally) is the starting point for many divorces. Therefore, it is important to be aware that pensions are one of the assets that can be shared and the court has the power to make orders doing exactly that. Although the pension will still not be payable any earlier than the scheme rules allow, it is still available for sharing immediately.

Why is it important to seek legal advice?

How the pensions are distributed will differ in each case, depending on the individual circumstances. No two cases are the same.

Pensions can be dealt with in one of three ways:

1. Pension sharing
2. Pension attachment
3. Offsetting

Pension sharing is when a share of one spouse's pension is transferred to the other spouse at the conclusion of the financial proceedings.

Pension attachment 'earmarks' the pension benefits for the benefit of the other spouse in the future. This is no longer a popular option for a number of reasons, including the fact that one spouse must wait for their ex-spouse to retire or choose to start taking benefits before they can share in them. If they take their benefits early, then the benefits would reduce for the receiving spouse.

Pension offsetting allows you to offset the value of your pension against other assets; for example, one spouse retaining their pension by allowing the other spouse to retain a greater share of the family home. The pension benefits will need to be valued as a lump sum in today's terms.

Your specialist family solicitor will be able to advise you on the various options available to you to meet your needs and requirements.

Why might I need an actuary?

Where there are varying, large or defined benefit pensions, your solicitor is likely to advise you to obtain a pension report from a pension expert (an actuary or specialist financial adviser). In many circumstances the court will give permission to obtain a pension report to explain the options.

However, you do not need to be engaged in court proceedings to instruct an expert. Your solicitor can help you find the right expert and instruct them on your behalf. A letter of instruction will be prepared and then agreed with your spouse's solicitor before being sent to the expert.

There are a number of other factors to consider when pensions are involved.

• The costs of implementation of a pension sharing order. Should one party bear the full costs or should they be divided equally? There may be benefit in the spouse receiving the pension share bearing the implementation costs if they suspect that their spouse may deliberately delay paying their share of the costs
• Finalising your divorce or dissolution. Your solicitor will be able to advise you whether it is appropriate to finalise your divorce or dissolution proceedings before a final financial order is made by the court. Depending on the circumstances, advice is often given to hold off applying for a decree absolute/final order until the court has made a financial order. This is to ensure that you do not lose rights that may be available under your spouse's pension if they were to pass away prior to the finances being resolved, but after the final order in divorce has been granted
• Timing is essential. When pensions are involved, the petitioner/applicant in divorce should not apply for a decree absolute/final order until 28 days after the financial order has been sealed by the court.

Once the court has approved the financial order and pension sharing annex (the document providing details of the pensions to be shared) and the divorce final order/decree absolute is received from the court, it will need to be sent to the pension administrator to implement the pension share. This can take 4 months or more.

Why is it important to seek financial advice?

Seeking financial advice is equally important when considering a pension share. Your solicitor will often liaise with your financial adviser when considering with you outcomes and preparing offers. Financial advisers help with planning for your retirement, and seeking their advice from the outset could help with presenting your case and provide you with reassurance as to funds available for your retirement.

Financial advisers provide an important role for the spouse with the pension debit (the person whose pension is being reduced) and equally for the spouse with the pension credit (the person who will be receiving a pension share).

The spouse with the pension debit will require financial advice regarding the impact the debit will have on their pensions and what they can do to help improve their pension benefits or income in the future.

The spouse with the pension credit will need advice on whether they would benefit better from an internal or external pension share (if available) and, if external, where would be the best place.

Financial advisers can also help on many other aspects of settlement, such as tax, cashflow modelling and savings and investments in cases where one spouse is likely to receive a large lump sum.

If you do not already have a financial adviser, your lawyer is able to help you find the right financial adviser for you.